Severstal reports Q3 & 9M 2018 financial results (735377)
October 19 2018 - 1:01AM
UK Regulatory
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release.
PAO Severstal (SVST)
Severstal reports Q3 & 9M 2018 financial results
19-Oct-2018 / 09:00 MSK
Dissemination of a Regulatory Announcement that contains inside information
according to REGULATION (EU) No 596/2014 (MAR), transmitted by EQS Group.
The issuer is solely responsible for the content of this announcement.
Severstal reports Q3 & 9M 2018 financial results
Moscow, Russia - 19 October 2018 - PAO Severstal (MICEX-RTS: CHMF; LSE:
SVST), one of the world's leading steel and steel-related mining companies,
today announces its Q3 & 9M 2018 financial results for the period ended 30
September 2018.
CONSOLIDATED FINANCIAL RESULTS FOR THE QUARTERED 30 SEPTEMBER 2018
$ million, Q3 2018 Q2 2018 Change, % 9M 2018 9M 2017 Change, %
unless
otherwise
stated
Revenue 2,063 2,259 (8.7%) 6,495 5,670 14.6%
EBITDA1 768 874 (12.1%) 2,348 1,823 28.8%
EBITDA 37.2% 38.7% (1.5 ppts) 36.2% 32.2% 4.0 ppts
margin, %
Profit from 671 766 (12.4%) 2,022 1,506 34.3%
operations
Operating 32.5% 33.9% (1.4 ppts) 31.1% 26.6% 4.5 ppts
margin, %
Free cash 481 598 (19.6%) 1,368 959 42.6%
flow2
Net profit3 455 557 (18.3%) 1,473 792 86.0%
Basic EPS4, 0.56 0.68 (17.6%) 1.81 0.98 84.7%
$
Notes:
1) EBITDA represents profit from operations plus depreciation and
amortisation of productive assets (including the Group's share in
depreciation and amortisation of associates and joint ventures) adjusted for
gain/(loss) on disposals of PPE and intangible assets and its share in
associates' and joint ventures' non-operating income/(expenses).
2) Free Cash Flow is determined as the aggregate amount of the following
items: Net cash from operating activities, CAPEX, proceeds from disposal of
PPE, interest received and dividends received.
3) Net profit after FX fluctuations and other non-cash items.
4) Basic EPS is calculated on the following basis: net profit divided by the
weighted average number of shares outstanding during the period: 818.6
million shares for Q3 2018, 814.4 million shares for Q2 2018, 815.7 million
shares for 9M 2018 and 810.9 million shares for 9M 2017.
Q3 2018 vs. Q2 2018 ANALYSIS:
? Group revenue declined 8.7% q/q to $2,063 million (Q2 2018: $2,259
million) due to reduced sales volumes of steel products and iron ore
pellets, which reflects the high-base effect of Q2, as well as declining
steel prices q/q.
? Group EBITDA declined 12.1% q/q, to $768 million (Q2 2018: $874 million)
reflecting topline decline which was partially offset by lower cost of
sales. Group EBITDA margin remained strong at 37.2%, and close to the
record level set in the previous quarter (Q2 2018: 38.7%). Severstal's
EBITDA margin remains one of the highest in the industry globally.
? Free cash flow totalled $481 million (Q2 2018: $598 million), which
reflects earnings decline compensated by a release of net working capital
due to input VAT and a decline in accounts receivable. The effective
conversion of EBITDA to free cash flow remains one of the Company's key
strategic financial priorities.
? Net profit of $455 million (Q2 2018: $557 million) includes a FX loss of
$41 million. Adjusting for this non-cash item, Severstal would have posted
an underlying net profit of $496 million (Q2 2018: net profit of $613
million).
? Cash CAPEX remained almost flat q/q at $168 million (Q2 2018: $160
million). The Group's capital expenditure programme for 2018 is expected
to be 49.5 billion RUB and will focus on upstream investments.
? Net debt grew to $438 million by the end of Q3 2018 (Q2 2018: $153
million), primarily reflecting lower cash balances after the dividend
payout in Q3. The Company's public debt includes outstanding loan
participation notes due in 2021 and 2022, and convertible bonds due in
2021 and 2022.
? Severstal is committed to returning value to its shareholders whilst
managing and maintaining a low level of debt. Severstal's financial
position remains strong with its Net debt/EBITDA ratio at 0.1x as at the
end of Q3 2018. As a result, the Board of Directors is recommending a
dividend of 44.39 roubles per share for Q3 2018.
9M 2018 vs. 9M 2017 ANALYSIS:
? Group revenue increased 14.6% y/y to $6,495 million (9M 2017: $5,670
million). The significant growth in revenue y/y was supported by a
favourable steel and commodities pricing environment in 2018 and 4% growth
in steel sales volumes y/y.
? Group EBITDA grew 28.8% y/y to $2,348 million (9M 2017: $1,823 million)
driven by topline growth, which was partly offset by an increase in the
cost of goods sold.
? The Company generated $1,368 million of free cash flow, which represents
a significant increase of 42.6% y/y (9M 2017: $959 million) as a result of
earnings growth y/y.
? The Group maintained its prudent approach to CAPEX with investments
equal to $464 million in 9M 2018, an increase of 10.2% y/y (9M 2017: $421
million).
FINANCIAL POSITION HIGHLIGHTS:
? At the end of Q3 2018, cash and cash equivalents stood at $1,054 million
(Q2 2018: $1,376 million), reflecting the dividend payment in Q3 offset by
FCF generation for the period.
? Gross debt remained broadly unchanged at $1,492 million (Q2 2018: $1,529
million).
? Net debt grew to $438 million by the end of Q3 2018 (Q2 2018: $153
million), primarily reflecting a fall in cash balances following the
dividend payout in Q3. The Net Debt/EBITDA ratio remained flat at 0.1x at
the end of Q3 2018 (Q2 2018: 0.1x). Severstal's Net Debt/EBITDA remains
one of the lowest amongst steel companies globally and enables Severstal
to maintain a low level of debt whilst returning value to its
shareholders.
? The liquidity position remains strong, with $1,054 million in cash and
cash equivalents and unused committed credit lines of $1,030 million, more
than covering the short-term principal debt of $143 million.
Alexander Shevelev, CEO of Severstal Management, commented:
"Severstal has delivered another solid performance in the third quarter
including an almost 30% increase in EBITDA year on year. Despite the decline
in our steel sales in Q3 2018, due to the planned rolling mills maintenance,
FCF generation remained strong with a sizeable release of working capital
and output progress of our coking coal business.
Though domestic steel demand is moderating, looking into Q4 2018 we are
expecting global steel demand to remain at good levels on the back of
strength of the world's economy and continued capacity cuts in China. Hence
we are anticipating a solid Q4 2018. This gives confidence to the Board of
Directors to recommend a dividend of 44.39 roubles per share for Q3 2018
bringing the dividend payout to more than 100% of the quarterly FCF.
Further development of our ESG system remains a priority for us. I am happy
to say that since the start of the year we have disclosed our long-term
goals in safety and environmental impact, CO2 emissions, as well as started
disclosing key data on our HSE performance as part of our operational
reporting on a half-yearly basis. We intend to raise our ESG transparency
levels further".
SEVERSTAL RUSSIAN STEEL (RSD)
$ million, Q3 2018 Q2 2018 Change, % 9M 2018 9M 2017 Change, %
unless
otherwise
stated
Revenue 1,897 2,036 (6.8%) 5,958 5,226 14.0%
EBITDA 553 630 (12.2%) 1,718 1,228 39.9%
EBITDA 29.2% 30.9% (1.7 ppts) 28.8% 23.5% 5.3 ppts
margin, %
RSD steel product sales declined to 2.72 mln tonnes compared with the
previous quarter (Q2 2018: 2.86 mln tonnes) due to short-term maintenance
works at rolling-mill facilities.
Domestic sales remained high at 65% (Q2 2018: 64%).The share of high
value-added (HVA) products within the sales portfolio increased two ppts to
48% (Q2 2018: 46%) as the Company increased colour-coated and large diameter
pipe product sales. At the same time Severstal reduced sales of
semi-finished and hot-rolled coil (HRC).
Average selling prices for the majority of steel products declined in Q3
2018 in line with global benchmarks. The decline in LDP average selling
price in 9M 2018 was offset by higher sales volumes of thick plate.
Declining sales volumes and steel prices resulted in a 6.8% decrease in
revenue q/q to $1,897 million (Q2 2018: $2,036 million). EBITDA declined
12.2% q/q to $553 million (Q2 2018: $630 million) due to a drop in revenue,
which was partially offset by lower cost of sales. The EBITDA margin
remained almost unchanged at 29.2% (Q2 2018: 30.9%).
The total non-integrated cash cost of slab production at the Cherepovets
Steel Mill in Q3 2018 remained almost unchanged at $325/t (Q2 2018: $322/t)
as a result of higher raw material and repair expenses offset by Russian
currency depreciation q/q. The integrated cash cost of slab in Q3 2018
decreased $3/t to $230/t (Q2 2018: $233/t) as a result of Resources division
EBITDA growth.
SEVERSTAL RESOURCES
$ million, Q3 2018 Q2 2018 Change, % 9M 2018 9M 2017 Change, %
unless
otherwise
stated
Revenue 468 475 (1.5%) 1,345 1,253 7.3%
EBITDA 253 232 9.1% 673 607 10.9%
EBITDA 54.1% 48.8% 5.3 ppts 50.0% 48.4% 1.6 ppts
margin, %
Coking coal concentrate sales volumes from Vorkutaugol grew 27%, largely
driven by higher production volumes of "2ZH", "GZHO" and "Concentrate K"
following the repositioning of long-walls at the Komsomolskaya and
Vorkutinskaya mines in Q2.
Iron ore pellet sales declined by 18% and totalled 2.55 mln tonnes (Q2 2018:
3.12 mln tonnes) after the realisation of a share of finished goods in
transit in Q2, carried over from the previous quarter.
Iron ore concentrate sales increased to 1.42 mln tonnes (Q2 2018: 1.36 mln
tonnes) driven by production growth at the Olcon and Yakovlevskiy mines.
Whilst revenue of the Resources division declined 1.5% q/q, to $468 million
(Q2 2018: $475 million) reflecting the q/q high base effect in pellet sales
volumes partially offset by higher selling prices, EBITDA increased 9.1% to
$253 million (Q2 2018: $232 million) due to a decrease in cost of sales.
EBITDA margin reached a record level of 54.1%.
Given the fixed cost nature of the mining business, higher processing
volumes and Russian currency depreciation at Vorkutaugol brought Q3 2018
cash costs down to 64$/t (Q2 2018: $85/t). ?ash cost per tonne at Karelsky
Okatysh increased to $26/t (Q2 2018: $23/t) driven by sales volumes decline
partially offset by weaker RUB. Cash cost per tonne at Olcon was flat at
$28/t (Q2 2018: $28/t).
DIVIDEND
The Board is recommending a dividend payment of 44.39 roubles per share for
the three months ended 30 September 2018.
Approval of the dividend is expected at the Company's EGM which will take
place on 23 November 2018. The record date for participation in the EGM is
29 October 2018.
The recommended record date for the dividend payment is 4 December 2018. The
approval of the record date for the dividend payment is also expected at the
Company's EGM which will take place on 23 November 2018.
Efficient conversion of high EBITDA margins into free cash flow supports our
commitment to be a quarterly dividend payer with up to 100% FCF payout,
provided that Net Debt/EBITDA level is below 1.0x.
OUTLOOK
In Q3 global steel prices were supported by a strong Chinese market and
global GDP growth. China's active environmental policy has had a strong
effect, with the introduction of selective production restrictions and
certain Chinese steel producers relocating capacity ahead of the winter
heating season. Global demand for steel and raw materials is expected to
remain at good levels.
Despite some signs of demand softening on the local demand, Severstal's
proximity to export routes continues to be our serious competitive advantage
allowing to redistribute shipments quickly between domestic and export
markets for best price options.
NOTES
1. Full financial statements are available at
http://www.severstal.com/eng/ir/results_and_reports/financial_results/index.
phtml [1]
2. The Annual Report 2017 is available at
http://www.severstal.com/eng/ir/results_and_reports/annual_reports/index.pht
ml [2]
For further information, please contact:
Severstal Investor Relations
Evgeny Belov
T: +7 (495) 926-77-66
evgenii.belov@severstal.com
Vladimir Zaluzhsky
T: +7 (495) 926-77-66
vladimir.zaluzhsky@severstal.com
Severstal Public Relations
Anastasia Mishanina
T: +7 (495) 926-77-66
anastasia.mishanina@severstal.com
Vladimir Zaluzhsky
T: +7 (495) 926-77-66
vladimir.zaluzhsky@severstal.com
Severstal's financial communications agent - Hudson Sandler
Andrew Hayes / Emily Dillon / Alex Brennan / Dan de Belder
T: +44 (0) 20 7796 4133
A conference call on Q3 2018 results for investors and analysts hosted by
Alexey Kulichenko, Chief Financial Officer, will be held on 19 October 2018
at 13.00 (London)/ 15.00 (Moscow).
Conference ID: 7885363
International Dial:
+44 (0)330 336 9411
Russian Dial:
+7 495 646 9190 (Local access)
810 8002 8675011 (Toll free)
The call will be recorded and there will be a replay facility available for
7 days as follows:
Replay Passcode: 7885363
International Dial:
+44 (0) 207 660 0134 (Local access)
Russian Dial:
8 10 800 2702 1012 (Toll free)
***
P?? Severstal is one of the world's leading vertically-integrated steel and
steel related mining companies, with assets in Russia, Latvia and Poland.
Severstal is listed on RTS and MICEX and the company's GDRs are traded on
the LSE. Severstal reported revenue of $7,848 million and EBITDA of $2,577
million in 2017. Severstal's crude steel production in 2017 reached 11.7
million tonnes. www.severstal.com [3]
ISIN: US8181503025
Category Code: QRT
TIDM: SVST
LEI Code: 213800OKDPTV6K4ONO53
Sequence No.: 6259
EQS News ID: 735377
End of Announcement EQS News Service
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(END) Dow Jones Newswires
October 19, 2018 02:01 ET (06:01 GMT)
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